Tax Deductions for First-Year Home Owners

Congratulations -- you're a homeowner! Now that you've moved into your new digs, you'll need to:

• Decide what color to paint the living room
• Sort through those last few boxes (eventually)
• Learn about tax deductions for new homeowners

Even before you sign on the dotted line, you can get a mortgage credit certificate (MCC), which is intended to help lower-income buyers afford homeownership.

If you qualify, you can claim the credit each year to cover part of your home's interest. The only catch: You must get an MCC before you get a mortgage and buy a home. Contact your state or local housing finance agency for more information.

You're eligible for a host of tax deductions the minute you get the keys to your front door. Like all homeowners, you can subtract real estate taxes and mortgage interest from your tax tab. Even if you bought a home in December, it's worth getting a few dollars off your IRS bill.

The year you buy your home, you can also deduct any money paid towards mortgage points. The term "points" refers to charges paid by a borrower to get a mortgage, and can also be called loan discounts, discount points, origination fees or maximum loan charges.

You must meet these criteria to qualify:

• You are buying (not refinancing) a primary residence. Your loan must be secured by the home you live in most of the time.
• Your overall cash paid at closing exceeds the points charged. This can include money from you, or points paid by the seller. You can't deduct points you paid for with borrowed funds from a lender or mortgage broker.
• You're not using the points to avoid traditional closing costs. If you paid points in lieu of closing costs, like title insurance and attorney's fees, you can't get a tax credit.

If you meet that criteria, the amount on your settlement statement that's listed as "points charged for the mortgage" can be deducted from your taxes.

Always consult your tax advisor. For more information about home mortgage points, visit the IRS Web site.